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November
26, 2002, 8:30 a.m.
“Regulate
Them, Not Me!”
A financial
media double standard.
By Donald Luskin
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 he
financial media is in an uproar over proposed new New York Stock Exchange
and National Association of Securities Dealers rules that would require
stock analysts to stop talking to reporters who do not include mandated
disclosures when the analyst is quoted in print. Regulations to rein in
"tainted" Wall Street stock research — the very regulations
that the media has been hollering for all year — have come back to
bite the Fourth Estate.
The issue is simple.
Under new rules put in place this year, stock analysts must disclose their
own and their firm's conflicts of interest in their reports. Now the regulators
are trying to close a loophole: talking to the press is just another way
of making research available to the public, so the same disclosure rules
apply. The regulators are now saying that if a particular newspaper won't
print the disclosures, then the analyst can't talk to that newspaper.
Is that so different that saying that if a particular printer of research
reports refuses to print the disclosures in the footnotes, the analyst
has to find another printer?
But to the media
it's nothing less than an assault on the First Amendment. Floyd Norris
of the The New York Times broke the story last Friday in an apoplectic
column, writing, "If a newspaper won't print information that
the New York Stock Exchange thinks investors should know, then perhaps
that paper's reporters should not be allowed to talk to analysts. . .
. Might the Food and Drug Administration order pharmaceutical companies
not to talk to reporters who mention drugs without disclosing all side
effects?"
For the media, when
it comes to the type of regulation that they urge on everyone else, the
response is: "Not in my back yard!" According to a
story in the Saturday New York Times, Dow Jones said in a statement,
". . . decisions as to what information to include in articles lie
with reporters and editors." The New York Times Company said in a
statement, "The governmental regulation proposed here would prohibit
analysts from speaking to reporters, thereby decreasing the flow of information
to the public." A Forbes editor calls it "utterly threatening."
A lawyer is quoted as saying, "It should be the newspaper's editorial
discretion as to what is important for its readers."
So, if you're an
analyst for an investment bank you've got to have regulators telling you
how to manage the "flow of information to the public." The First
Amendment doesn't apply to you. But if you're writing all the same stuff
into your newspaper article, you can just wrap yourself in the Constitution
and have at it. Sounds a lot like the campaign finance reform laws that
the media love so much. Candidates and special interest groups should
be limited in how they can speak to voters, but no similar restrictions
are to be placed on the editorial pages of America's newspapers.
The regulators are
already beginning to cave. According to an article in the Wall Street
Journal this week, an NASD spokesman is saying, "After receiving
some complaints and looking at the original language, we realize we probably
didn't get it quite right. . . . We're going to amend our rule filing
to make it clear that while we want our analysts to make disclosures,
we're going to leave it up to the media outlets to decide whether to use
the disclosures or not, [and] we aren't going to tell our members who
they should or shouldn't be talking to."
Smart move, probably,
and another case of "never get in a fight with a guy who buys his
ink by the barrel." If this particular ink-flinging fest results
in one less regulation on commercial speech, I'll be a happy guy. But
it is galling, isn't it? The media led the cheerleading for regulatory
encroachment in capital markets all year, fanning the flames of a post-Enron
rule-making frenzy. Now they're claiming such regulation does not apply
to the media.
—
Donald Luskin is chief investment officer of Trend
Macrolytics LLC, an independent economics and investment-research
firm. He welcomes your comments at don@trendmacro.com.
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